Creating and Managing Wealth

All this talk of stimulus preventing Depression 2.0 reminds us of some of the policies around Depression 1.0.

The government had a public works program, the Civilian Conservation Corps. They built roads in the North and drained swamps in the South. There was the Emergency Banking Act, which, combined with the national bank holiday, stabilized thousands of banks around the country. And there was the Agriculture Adjustment Act which was designed to raise and stabilize crop prices. They paid farmers to pour out their milk and dump their corn crops in the river.

Most of these policies have their modern-day counterparts. While the Federal Government isn’t hiring millions of people to build roads, they are contracting the job out. That’s why we’ve gotten so many highways resurfaced. The TARP plan did help the banks, and now many of them are planning to pay the money back, with interest. And our cash-for-clunkers program is built around the idea that we can scrap our way to success.

But it’s always bothered me that the government wants to pay us to destroy goods and services. Couldn’t we find an innovative use for all those destroyed crops? Like, maybe, biofuel? Wouldn’t we all be better off if we shipped our clunkers to Mexico or Africa? Those folks need transportation, and it might make their economies more productive. It might even stimulate exports here.

I’ve never understood how destroying wealth can make us all more wealthy. If the key to growth is doing more with less, just having less around doesn’t seem to get us there.

Douglas R. Tengdin, CFA
Chief Investment Officer
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